Non-profits no better on charity care

Mike Colias

With non-profit hospitals under pressure to justify their tax breaks by providing more charity care, a Crain's analysis shows that local for-profit hospitals provide as much  and often more  treatment to poor people as their non-profit, tax-exempt peers.
Six Chicago-area hospitals are for-profit and pay taxes. Yet all of them spent a bigger chunk of their revenue last year on a combination of charity care and treatment of public-aid patients compared to the majority of the area's 20 largest non-profit hospitals, according to a review of data from the Illinois Department of Public Health.
"There is some degree of an unlevel playing field in the relationship between charity and tax status," says Brian Lemon, CEO of MacNeal Hospital in Berwyn, which is owned by a for-profit, Tennessee-based hospital chain and provided $2.2 million in free care last year. "In terms of our mission, there's no difference."
Critics contend that non-profit hospitals aren't doing enough to earn their tax breaks, which shield them from property and income taxes and allow them to issue tax-free bonds and receive deductible donations. The blurred line between tax-exempt institutions and their for-profit competitors underscores the need for clearer

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With non-profit hospitals under pressure to justify their tax breaks by providing more charity care, a Crain's analysis shows that local for-profit hospitals provide as much  and often more  treatment to poor people as their non-profit, tax-exempt peers.

With non-profit hospitals under pressure to justify their tax breaks by providing more charity care, a Crain's analysis shows that local for-profit hospitals provide as much  and often more  treatment to poor people as their non-profit, tax-exempt peers.

Six Chicago-area hospitals are for-profit and pay taxes. Yet all of them spent a bigger chunk of their revenue last year on a combination of charity care and treatment of public-aid patients compared to the majority of the area's 20 largest non-profit hospitals, according to a review of data from the Illinois Department of Public Health.

"There is some degree of an unlevel playing field in the relationship between charity and tax status," says Brian Lemon, CEO of MacNeal Hospital in Berwyn, which is owned by a for-profit, Tennessee-based hospital chain and provided $2.2 million in free care last year. "In terms of our mission, there's no difference."

Critics contend that non-profit hospitals aren't doing enough to earn their tax breaks, which shield them from property and income taxes and allow them to issue tax-free bonds and receive deductible donations. The blurred line between tax-exempt institutions and their for-profit competitors underscores the need for clearer criteria for determining tax exemptions, some experts say.

"I definitely think it argues for a finer point on what charity is, and I think we're grinding toward that," says Beaufort Longest, director of the Health Policy Institute at the University of Pittsburgh.

Illinois has been a flashpoint in a national debate over charity care ever since Champaign County officials stripped Provena Covenant Medical Center of its exemption in 2003, determining its charity care of less than 1% of revenue wasn't enough. The case is now in the hands of the Illinois Supreme Court, which heard arguments last month and is expected to rule in coming months.

Federal law requires hospitals to provide a "community benefit" in exchange for tax exemptions. Among other things, hospitals point to the free or discounted care they provide to poor people, as well as the losses they absorb from treating patients on Medicaid, the health plan for the indigent that generally doesn't cover treatment costs.

Experts say it's no surprise that for-profit hospitals offer free care. Like their non-profit brethren, they are required by law to treat patients who end up in their emergency rooms, regardless of ability to pay. And many Chicago-area non-profits have above-average Medicaid loads because they are in low-income areas.

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MORE FREE CARE

In many cases, local for-profit hospitals dole out more free care and public aid than non-profits. Weiss Memorial Hospital in Uptown and Vista Medical Center East in Waukegan each spent 1.6% of patient revenue on charity last year. That's higher than half of the area's 20 largest hospitals, including Resurrection Medical Center (0.5%); Northwest Community Hospital (1.1%), and Palos Community Hospital (1.3%).

Yet Weiss paid about $2 million in property and sales taxes last year, while Northwest Community's tax exemption helped it avoid $11.2 million in taxes, according to the Chicago-based Center for Budget and Tax Accountability. Palos' exemption was worth $12.8 million, the group says.

Weiss also had a bigger Medicaid load relative to its size: 14% of its revenue came from the public-aid program, vs. 3.5% for Northwest Community's and less than 1% for Palos.

An April study from the Center for Budget and Tax Accountability said that 47 local hospitals earned $489.5 million in property and sales tax breaks while providing only $175.7 million in free or discounted care to the poor. The hospital industry calls the study flawed.

Howard Peters, senior vice-president of the Illinois Hospital Assn., says it's inappropriate to compare non-profit and for-profit hospitals, in part because they have different ownership structures. Investor-owned hospitals aim to return profits to shareholders, whereas at non-profits, "any excess revenues go back into the enterprise."

He calls charity care "the narrowest definition" of the benefits hospitals provide their communities. He says Medicaid as a percentage of revenue isn't a good benchmark of charity because hospitals' losses from the program vary depending on their cost structure. He says non-profit hospitals on average likely lose more money on Medicaid than for-profit institutions, although those figures aren't publicly available.

"Whether investor-owned or not-for-profit, hospitals across the board are doing a lot of good things in a tough environment to meet the needs of their communities," Mr. Peters says.

The only local hospital to report no charity care spending last year was Sacred Heart Hospital, a for-profit on the West Side with a heavy Medicaid load. CEO Edward Novak says the hospital provides plenty of free care, but it doesn't track or report it. He sees no difference between his hospital and tax-exempt competitors.

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"If you look like a business and act like a business, how do you call yourself a charity?" he says.